Adequate External Buffer Now In Place: Reserves Increased by US$3.82bn in Dec 2017 to US$38.77b


increased by US$3.82bn in December to US$38.77bn. This rapid accumulation was largely the result of the FGN’s successful Eurobond roadshow in November, which raised US$3.0bn and is reflected in the reserves on a 30-day moving average basis.

Among additional factors, we highlight the improvement in oil revenues in recent months in terms of both output and export price. We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks.

The CBN’s unorthodox deployment of several fx windows since Q1 2017 had no impact on the roadshow. Indeed, several sovereigns with weaker credit stories than Nigeria’s managed to tap the international capital markets in 2017. The creation of the windows, including that for investors and exporters (NAFEX), has enabled the CBN to meet fx demand and has attracted the inflows that have also contributed to the accretion of reserves.

The CBN will be pleased with the encouraging signals from NAFEX. Turnover (ie both sides of trades) from its launch in late April through to 03 January totals US$26.3bn. It has averaged US$1.0bn on a weekly basis since mid-September.

Reserves at end-December covered 14.4 months’ merchandise imports, and 9.7 months when we add imports of services. The calculations are based on the balance of payments for the 12 months through to September 2017. The debate should move on from whether Nigeria has an adequate external buffer to whether it is maximizing the revenue accruing from its reserves.

The FGN will have to repay US$500m on the maturity of its July ’18 Eurobonds this year but we would be very surprised if it does not opt for refinancing in the same market.